• Keep NEUTRAL and MYR1.08 TP, 3% upside. 1Q24 core earnings of MYR4.7m (-29.7% YoY) missed expectations on higher-than-expected opex. The transaction payment acquisition (TPA) organic business stayed robust, supported by tourism activities. The cashless payment megatrend and sustainable growth in the transaction payment value (TPV) unit are the main growth drivers. We advise investors to accept the MYR1.08/share takeover offer as it implies a premium to our prior TP and the 1-year volume-weighted average price, making it an attractive valuation above its historical mean.

• A slow start. GHL Systems’ 1Q24 revenue of MYR122.6m translated to MYR4.7m core earnings, coming in below expectations, at 15.6% and 13.1% of our and Street’s full-year forecasts. The underperformance was on higher opex, technology upgrades, and hiring of additional staff costs. The TPA unit grew 17.1% YoY to MYR85.9m due to the higher payment transactions captured in all the countries GHLS operates in, especially Thailand, thanks to booming tourism activities. The shared services unit grew by 22.8% YoY due to higher electronic data capture (EDC) sales, as well as rental and maintenance revenue. On the other hand, the solution services unit was down 6.7% due to lower software sales revenue.

• QoQ. Similarly, the -29% QoQ in core profit was due to the high base effect of high EDC hardware sales in 1Q24, partially cushioned by the higher (+2.1%) TPA unit. The higher opex related to Direct Acquiring business, IT security and cloud infrastructure, as well as human capital led to the weaker performance. 1Q24 combine TPV grew by 24% YoY (+8% QoQ) to MYR8.7bn, supported by higher tourism spending, especially in Thailand and Malaysia.

• Forecast and TP. We cut FY24F earnings by 11% after factoring in higher opex costs. Our TP is unchanged at MYR1.08, reflecting the offer price from NTT Data Japan Corp following the unconditional mandatory takeover exercise. Risks: Non-completion of the deal.

Source: RHB Research - 29 May 2024